Hey. Look Over Here!

[Tyson Scheutze]

Last week we had Auben Realty’s Brent Voepel talk about “The Price of Property Management” and specifically discuss (perhaps even justify?) why a 10% management fee could be a bargain for excellent property management services. Brent’s interesting blog (which can be found HERE) also posed the questions: What if management is horrible? Then what is the price?

From an investor’s perspective, it is hard to overstate the importance of professional property management and its impact on an investor’s return. And yet, most investors, big and small, individual to institutional, tend to only focus on one thing: the monthly management fee. In reality this is only one piece of the puzzle.

When I started managing single-family rental homes back in 2009 in Augusta, GA, there was less variance in the industry (and also less services available). Property management was 10% of the gross monthly collected rent. Maybe a manager would consider discounting to 8%. But the fees and services were pretty universal (at least in our markets). I was adamant about not devaluing our services and lowering rates in what I believed could only end as a “a race to the bottom” for our industry and profession. Volume property discounts were rare for us to offer, even with clients with hundreds of properties.

Little did I know how far the industry would be willing to discount and devalue its services over the next 10-15 years in pursuit of more management contracts and more doors under management.

When I started managing single family homes, lease up fees were the other main fee that investors focused on and the fees ranged from 50%-100% of the first month’s rent. Some other items came into play were manager percentage of late fees and maintenance oversight fees and renewal fees. But that was about the extent of the fee structure and services rendered.

It’s funny though, no matter what our fee structure was, investors only focused on our monthly management fee. I get it. It is the constant, recurring cost. Perhaps that singular focus perspective was possible 15 years ago. But with the array of services and fee structures current property management companies offer, it is entirely possible to pay an extremely low management fee and still be “fee-ed” to death as both an investor—and now even as a resident.

Over the past 15 years, the amount of managers and fee structure variance in our industry has been incredible. Flat fee services, multiple layer and level packages (Silver, Gold, Platinum) have accompanied all kinds of other offerings, tenant and eviction insurance, marketing fees, reporting fees, tech fees, and even talk-to-a-real person fees.

As SFR property management was evolving, an interesting thing occurred, the most capitalized and sophisticated investors (who also had the most volume of properties) asked for lower and lower fees, even as they asked for more oversight and property managers who could act like asset managers with a holistic view.

Property managers consistently battled for contracts with multifamily management level fees (4-6% monthly), even while the SFR asset class lacked the best (and most important) part of multi-family: uniformity and density. Lacking the uniformity and density, SFR property managers went heavily to more tech and less people (or at least remote people).

The tech has been incredibly beneficial for the industry but we believe the tech was intended to complement, not replace. Often, over the past 5 years in particular, tech has become the experience. It’s hard to understand how costly that tech is until you have an admin in Iowa reading from a script to renew a resident in Roanoke with no connection to the person, the property or place.

But people matter.

Residents and owners need humans (not AI) to assist in navigating them through certain aspects of their largest and most often, most emotional transaction in their lives.

Having a property management service that is connected to its communities but still offers speed and scale and oversight and efficiency is incredibly difficult, but I believe it can be done.